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Accounting Rules Block Illumina From Booking Revenue For at Least 13 Sequencers

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Accounting rules will prevent Illumina from booking most of the revenue from the sale of at least 13 Genome Analyzers that Solexa shipped to early-access customers, Illumina President and CEO Jay Flatley said at an investor conference last week.
 
A few weeks before it was acquired by Illumina in late January, Solexa said it had begun invoicing early-access customers in the fourth quarter, and that it expected to begin recording revenue from these placements in the current quarter.
 
“Due to the wonders of acquisition accounting, much of the revenue that occurred [before the merger was completed], even though it was not recognized as revenue for Solexa, … will not be recognizable by us,” said Flatley, who spoke at the Cowen and Company 27th Health Care Conference in Boston. “So that revenue will disappear, it will not be recognized either by Solexa or by Illumina.”
 
The rule will affect all 13 units that Solexa shipped in 2006, as well as any additional systems shipped between Jan. 1 and Jan. 26, the date Illumina completed the acquisition, a company spokeswoman told In Sequence.
 
At the conference, Flatley said the integration of Solexa is “going quite well.” By now, sales and support are “100 percent integrated and fully operational as a single sales force,” he said, having just finished an internal company sales meeting last week.
 
Research and development, on the other hand, has not been consolidated yet. “We think it will take a little bit longer for us to put together all of the key R&D teams,” Flatley said. Illumina had been conducting internal research in the area of sequencing, he added, which will be combined with Solexa’s R&D groups.
 
He also reiterated that as of early February, the company had received 40 orders for the instrument, including the 13 systems it had shipped to early-access customers by the end of 2006.
 

“Due to the wonders of acquisition accounting, much of the revenue that occurred [before the merger was completed], even though it was not recognized as revenue for Solexa, … will not be recognizable by us. So that revenue will disappear.”

Illumina said in February that it expects to generate between $64 million and $68 million in total revenues for the first quarter but did not break out how much of that would derive from its sequencing business. The company generated $29.1 million during the same period in 2006.

 
On the sequencing service side, Flatley said the company has now delivered its first data to customers “under a series of service contracts that we have had in the backlog.”
 
These contracts included both resequencing projects and gene-expression projects, he added.
 
Flatley did not mention who these service customers are, but Solexa said last summer that it had converted several contracts of existing MPSS customers to the new sequencing technology. At that time, the company also said it had signed new sequencing service contracts.
 
As of the third quarter last year, Solexa had not recorded any service revenues from its new Genome Analysis System.

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